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Investing.com -- European retailers remain resilient despite signs of consumer strain in major markets, Barclays analysts say, noting that while the retail backdrop remains pressured, companies with scale and pricing power continue to hold up well.
Action (WA:ACT), one of the largest discount retailers, is still outperforming in several countries, though the margin of its lead has narrowed compared to last year.
Barclays flags “real affordability challenges” in France and continued caution among German consumers, but notes that Spain, Italy, and Poland are showing stronger momentum.
“We think Poland is also performing very well, helped by a strong price position,” the analysts led by Manjari Dhar said.
Moreover, competitive advantages remain intact, the team argues. Action’s size allows it to secure better terms from suppliers, which should translate into lower prices for consumers.
Barclays expects further benefits from Chinese suppliers, as some U.S. retailers have cancelled orders, though the impact will be more visible next year given Action’s nine- to twelve-month buying cycle.
That has left other discounters struggling in weaker markets such as France, while Action has faced little direct impact from new entrants like Temu.
Barclays said the app-based rival operates on a very different model, with longer delivery times and limited overlap in essentials.
Action is on track to open around 370 new stores this year, including its first outlets in Switzerland, where performance has been described as “very strong.” Barclays also noted that, unlike the usual trend where new stores normalize after one to two quarters, the Swiss stores are still outperforming.
A Romanian debut is planned for next month, with Croatia and Slovenia expected to follow in 2026. The company is also reviewing opportunities in the U.S., where Barclays does not expect tariffs to pose a major obstacle.
The analysts cautioned that tougher comparisons lie ahead, with like-for-like growth expected to moderate in the third quarter as comps get around three percentage points harder, and last year’s favourable autumn weather had supported spending.
On valuation, Barclays notes that Action remains expensive relative to peers, trading at an implied 12-month forward price-to-earnings (P/E) multiple of around 37 times. This is a clear premium to the sector average of about 26 times.
The analysts said this looks “fair for a business that has executed well, which should be able to deliver a high teens CY24-27e net income CAGR, but whose level of outperformance is narrowing.”
They also highlighted that 3I Group (LON:III), Action’s owner, trades at a 36% premium to its full-year 2026 (FY26) estimated net asset value (NAV), reflecting Action’s contribution.
Compared with international discount peers such as B&M (LON:BMEB), Dollarama (TSX:DOL), and Five Below (NASDAQ:FIVE), Action is still on a significant premium, though it offers one of the lowest PEG ratios.
By contrast, they prefer Avolta (SIX:AVOL) or Zalando (ETR:ZALG), which are expected to generate similar mid-to-high teens earnings growth at significantly lower multiples of about 14 times.